Analyst: Beware Huge China Property Bubble

China is encouraging property-market bubbles to stimulate growth and power past other countries hit by the global economic downturn, says Andy Xie, an economist formerly of Morgan Stanley Asia.

“People are looking at the bubbles as a way to gain economic growth in the short term,” Xie said on Bloomberg Television.

“They are not sure of long-term damages that they may suffer.”

The Communist Party cabinet is carrying on with monetary and fiscal stimulus, even though the economy surpassed the government’s forecasts for the first nine months of the year.

As a result of that policy, property sales — and property values — have soared there, while America and Europe have struggled.

The Chinese government financed a $585 billion stimulus package and banks extended a new record $1.27 trillion of credit. China’s economy expanded 8.9 percent in the third quarter, while housing prices climbed at the quickest pace in a year.

“Land prices have become so elevated,” said Xie, who accurately predicted in April 2007 China’s looming equities downturn.

“The economy has become so dependent on property and the prices are so high and it carries a lot of risk for the country going forward.”

Beijing’s biggest property developer, Soho China, Ltd., in fact, acknowledged this week that pre-sales will surpass $1.5 billion for the first time this year “largely” because of the government’s stimulus plan.

China’s property developers listed on the Shanghai Composite Index have more than doubled this year, compared with the mere 68 percent gain by the overall gauge.

This may not continue for long, however.

The Wall Street Journal is reporting scuttlebutt that indicates that China may revise its stimulus policy to avoid overheating the economy.

China is encouraging property-market bubbles to stimulate growth and power past other countries hit by the global economic downturn, says Andy Xie, an economist formerly of Morgan Stanley Asia.“People are looking at the bubbles as a way to gain economic growth in the short...